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Chapter 22 Prices
This chapter contains such price indexes as the Corporate Goods Price Index (called Wholesale Price Index prior to the 2000 base), Consumer Price Index that reflects transactions at the consumer's purchase level, Export/Import Price Index that reflects transactions in export and import and Agricultural Price Index (called Rural Price Index prior to the 2000 base). At the same time, the Urban Land Price Index is contained as well.
I. Corporate Goods Price Index (Wholesale Price Index) - Bank of Japan
1. Brief history
In 1895, the Investigation Committee on Monetary System published the "Comparison Tables of Price Ratios in Tokyo (1873-1894)," which listed the price index for the first time. This was followed by the "Price Index of Important Commodities" in 1895 (Ministry of Agriculture and Commerce), the "Wholesale Price Index in Tokyo City" in 1897 (Bank of Japan), the "Wholesale and Retail Price Index in Tokyo City" in 1898 (Ministry of Finance), the "Chamber of Commerce Price Index" (Ministry of Agriculture and Commerce) in 1901 and the "Wholesale Price Index for Tokyo Proper" in 1901 (Toyo Keizai Incorporated). The "Wholesale Price Index" of the Bank of Japan is the only one that has been continually compiled.
Subsequent to the end of World War II , the index was revised, changing the base to January 1948. The 280 commodities are used to compute the index. (The number was ultimately increased to 335.) In each major group, sub-groups established and special groups were added. The index was published in September 1949. The aggregate average index and index for groups are computed in a weighted arithmetic average method (Laspeyres' formula) with fixed weight at the base period (computed from the average trading amount of a period from 1932 to 1934). Subsequently they underwent several revisions (in every five years). The most recent revision was made in 2000 when the name was changed to the "Corporate Goods Price Index."
The name was changed because the Domestic Wholesale Price Index is supposed to be based on the selling prices of the first-stage wholesalers. However, in reality, prices at the producer's level weigh already 70%. In the future, the weight of price surveys conducted at the producer's level will increase more. Hence, the name was changed to the "Corporate Goods Price Index (CGPI)" to express more explicitly that the index sensitively reflects trends in supply and demand of commodities by consolidating prices in inter-corporate transactions.
The "Corporate Goods Price Index" replaces the former "Wholesale Price Index" in its makeup and is systematically connected to index for the years before 2000. In the 2000 revision, the base period and the year for computing weight were changed to 2000 from 1995. The revision also included the overhaul of commodities used for computing the index, the improvement of statistical accuracy and a change in the releasing method. This revision was the most extensive one in the last twenty years.
2. Index system and connection
(1) Basic index
* Domestic Corporate Goods Price Index:
It is a price index based on the prices of inter-corporate transactions of domestic products for domestic markets that have been surveyed at the producer's level or at the wholesale level.
* Export Price Index and Import Price Index:
The export price index is based on prices at the stage when goods for export are shipped from Japan, whereas the import price index is based on prices when imported goods are disembarked in Japan. The indexes are produced on a yen basis and also on a contract currency basis.
(2) Reference index
* Indexes by Stage of Demand and by Use:
These two indexes are computed by the stage of demand and by use of commodities in the economic cycle.
* Input and Output Price Index by Manufacturing Sector:
One is an input price index, which indicates trends in raw materials and fuels/power consumed in current productive activities by the sectors in the manufacturing industry. Another is an output price index, which indicates trends in the prices of produced commodities by the sectors in the manufacturing industry. These two indexes form a complementary pair.
(3) Connection of index
The year 2000 is taken as the base year (100) of the "Corporate Goods Price Index," and the "Wholesale Price Index" for the years before 2000 is retroactively connected to 1960.
3. Export/Import Price Index (prior to the 1975 base)
Subsequent to the reopening of private trade after the end of World War II , it became essential to monitor promptly the price level of exported and imported goods. The Bank of Japan began to compute export and import price indexes with the base period from July 1949 to June 1950 because it was believed that the influence of the single exchange rate has permeated by the period after it had been adopted in April 1949. The number of commodities used in its computation was 222 for export goods and 275 for import goods. The prices adopted in the survey were, in principle, the price at the time of making a contract (FOB price for export and CIF price for import). The structure of classification consists of eight major groups both for export and for import, under which subgroups of commodities were established. A weighted arithmetic average method (Laspeyres' formula) based on fixed weight at the base period was adopted in computation. Thereafter, the base period was changed several times. In December 1982, the export/import price survey was absorbed and integrated into the wholesale price survey under a new system.
4. Corporate Service Price Index
The "Corporate Service Price Index" indicates fluctuations in the prices of services traded among corporations. The index constitutes a pair with the "Corporate Goods Price Index" for goods traded among corporations. The Bank of Japan has been publishing the index since January 1991.
(1) Scope of index
The index covers services for business traded between corporations, and both domestic transactions and import transactions are included. However, it excludes "financial intermediary services" (financial imputed interest) which is traded in a relatively substantial sum and "commercial services" (intermediary margins of the wholesale industry) because it is difficult to grasp them by surveys.
(2) Base period of the index and of the weight
The year 1995 is the base period of the index and also the year for computing its weight.
(3) Selection and the number of commodities
The index is based 102 commodities selected because their weight data are available from transactions among corporations (endogenous sector) shown in the "Input-Output Table" and it is possible to collect consecutive data on their fair prices.
(4) Arithmetic formula of the index
It is the Laspeyres arithmetic formula based on the fixed base period.
II Consumer Price Index
1. Consumer Price Index (Statistics Bureau, Ministry of Internal Affairs and Communications)
(1) Brief historical background
The Statistics Bureau of the Prime Minister's Office began to compute the "Consumer Price Index" (CPI) in August 1946. It was based on the base period of eight months from August 1946 to March 1947. At that time, Japan had a dual price system in which controlled prices and black-market prices existed in parallel for daily necessities. There for, the index were calculated in the Fisher formula, using effective prices obtained from the "Consumer Price Survey" (which is the predecessor of the Family Income and Expenditure Survey) with the weight of expenditure.
Subsequently, the index was extensively revised in August 1949. First, the base period was changed to one year from January to December 1948. Second, its computation system was changed to the Laspeyres' formula. With these changes, it was recomputed retroactively to August 1946. In September 1952, the base period of the index was changed. At the same time, former effective prices were changed into retail prices that were obtained from the "Retail Price Survey" started in June 1950. Since then, the base period has been revised every five years since 1955, in consideration of changes in the structure of consumption.
(2) Method to compute the index
The consumer price indexes that are generally used are based on indexes issued after the 1948 base index.
(3) Characteristics and scope of the index
The "Consumer Price Index" measures time-series fluctuations in aggregate prices of various goods and services purchased by consumer households nationwide.
The regional scope covered by the index initially included cities with a population of 50,000 or more. Since 1963, the "National Average Index" has been issued.
(4) Computation of the index
The Laspeyres' formula is used.
(5) Base period
The base period is one year from January to December in each base year (1948, 1951 and every five years since 1955).
(6) Weight and the year for weight
The weight is based on the annual expenditure by commodity in each base year. However, as for fresh foods (fresh fish, fresh vegetables and fresh fruits), a monthly floating weight based on the average monthly expenditure of the base year and the preceding year has been used since the 1955 base index.
(7) Index series
a. Basic classification index
This index follows the classification of family income and expenditure used in the Family Income and Expenditure survey. The existing ones include index for ten major groups and for subgroups besides the general index.
b. Index of goods and services classification
This index is based on the classification of goods and services and the classification of industries. It has been computed since 1955. The index prior to the 1985 base index was called the "Special Classification Index."
c. Regional index
The index is computed in 72 series including the "National Average Index," the "Index of City Groups," the "Regional Index" and the "Prefectural Capital Index."
(8) Connected index
The 2000 base consumer price index is connected retroactively to 1955.
2. Prewar Base Consumer Price Index
The "Consumer Price Index" has been produced only since August 1946. Hence, no deflator was available for comparing the level of the prewar and postwar economy. When the Statistics Bureau of the Prime Minister's Office revised the 1951 base, it computed the prewar link index of Tokyo proper for connecting the indexes.
Fisher's ideal arithmetic formula was used in the calculation of the index. In the formula, the base period was fixed at the average of three years from 1932 to 1934 and the price multiple between this period and 1951 was obtained. Using this multiple, the postwar consumer price indexes were proportionately converted into indexes based on the period from 1932 to 1934.
3. Regional Difference Index of Consumer Prices
The "Regional Difference Index of Consumer Prices" were computed for the first time in 1947 to measure price disparities among cities. Since then, they have been revised several times.
Based on the national average price, the general index, the food index and the general index excluding rentals are calculated for city groups, regions, prefectural seats, Kawasaki City and Kitakyushu City. Ku area of Tokyo base index is obtained by dividing this index by Ku area of Tokyo index.
Retail Price Survey (Fundamental Statistics)
The Statistics Bureau of the Prime Minister's Office (currently the Statistics Bureau of the Ministry of Internal Affairs and Communications) has been conducting the survey since 1951. One purpose is to reveal the retail prices of goods and fees for services that account for a significant part of people's spending. Another is to compile the Consumer Price Index and other statistics concerning prices. The statistics function as basic materials for economic measures concerning consumers' life.
The survey is conducted in 167 cities, towns and villages that are selected from municipalities all over the nation. Each city, town or village is divided into a price survey district where commodity prices are surveyed and a rental survey district where rentals of rented houses etc. are surveyed. With respect to the survey of shops, retail stores or establishments that typically represent each area are selected for each commodity. In the rental survey district, all households (approximately 22,000) living in the rented houses or rooms within the district are surveyed.
Many enumerators are involved in the price survey. However, the prefectural government or the Ministry of Internal Affairs and Communications conducts a survey directly on the prices of commodities that are under public control.
IV Others (Index of Agricultural Product Prices and Index of Urban Land Prices)
1. Index of Agricultural Product Price
(1) Brief history
The rural price index has a long history. Before World War II , the Imperial Agricultural Association (the predecessor of the National Farmers Association) began to conduct the commodity price survey in rural areas, based on which the rural price index was computed. In this survey, five towns and villages per prefecture were selected from rural areas in nine prefectures. Thus, in these 45 towns and villages, the prices of 240 commodities in total - agricultural and forest products (80), articles used for farming (80) and household articles (80) - were surveyed for the price at the largest transaction in each month. A weighted arithmetic average method was used to compute the index based on the 1937 base year (100).
After the war, the "Rural Price Index" was taken over by the Ministry of Agriculture and Forestry (currently the Ministry of Agriculture, Forestry and Fisheries). It was conducted as the "Price Survey" and "Wage Survey," and the "Rural Price Index" were computed based on the data collected by the surveys. The index, however, was incomplete in many ways. Therefore, the method of calculating the index was improved in each subsequent revision. In particular, a substantial revision was made in 2000.
(2) Index of Agricultural Product Prices on 2000 Base
a. Structure of the index
The number of commodities adopted for the index is 123 for agricultural products and 151 for supplies and materials for agricultural production. It is computed in the Laspeyres' formula. Weight is computed on the basic of the sales amount of agricultural products per farm household and expenditure by production material per farm household. The source of data for weight is the "Statistics on Farm Household Management Trends" derived from the "Statistics Research of Farm Economy of 2000".
b. Base price
The base of the agricultural product price and of the agricultural production material prices are the average price of FY2000 according to the "Agricultural Product Price Survey."
2. Consumer Price Indexes in Rural Areas
The Ministry of Agriculture, Forestry and Fisheries had computed the "Consumer Price Indexes in Rural Areas" every month since 1951 to measure fluctuations in the prices of various goods and services consumed by farm households, but stopped them in 2000. The final 1995 base index were computed in the Laspeyres' formula. Weight was computed from family expenditure per farm household, which was derived from the results of the 1995 survey of Farm Household Management.
3. Index of Urban Land Price
(1) Brief history
The Nippon Kangyo Bank (currently Mizuho Bank) had computed the "Index of Urban Land Prices" since September 1936 as an indicator that shows the transition of land prices in urban districts. Subsequent to the establishment of the Japan Real Estate Institute, the Institute took over the survey in March 1959. Currently, the Institute computes and publishes the index.
(2) Target cities
223 major cities
(3) Date of survey
The survey takes place twice a year - the end of March and the end of September. The index prior to 1947 among prewar base index was based on surveys conducted in principle once a year at the end of September.
(4) Computation of the index
Refer to Chapter 15 Real Estate and Land.